How can you figure capital gains tax when selling property?

4 Comments

1. From Down Under says:

   July 13, 2011 at 4:52 pm

   Hi Lori!

   well can’t really help you with the US edition, but in Aus, the capital gain is calculated by taking proceeds (what you were paid on sale) and subtracting your “cost base” which includes things like interest payments, any conveyancing and the base cost of the land.

   In this case, since you have been given the land, you need to check whether there is a particular clause in your taxation law which substitutes the value for a market value. In australia we have the market-substitution rule… which means that even though you paid $1 for the property, for tax purposes it was not an arms-length transaction, and the cost will be deemed to be what it was worth at the time you got it.

   Best bet is to check in with a CPA about this, or else visit your tax office/OSR website as they will have lots of guidance and worked examples on it too.

   Good luck!
2. bostonianinmo says:

   July 13, 2011 at 4:52 pm

   Assuming that you hold it for at least a year (and not a single day less!) it will be taxed at either 5% or 15%, depending upon your taxable income and marginal tax rate. Since your basis is $1.00, the entire amount you realize on the sale will be taxable. So your worst case scenario is $8,250.00 if you sell it for $55k.

   Click here for more information: http://www.irs.gov/pub/irs-pdf/p544.pdf
3. TaxMan says:

   July 13, 2011 at 5:10 pm

   This is a clear case of needing to go to a tax office and speak with someone who is very experienced. You don’t necessarily have to go to a CPA, but don’t cheap-out. Why? Because even though you “paid” $1 for the property, you really didn’t pay $1 for the property. Since the value of the property was much higher than $1 when she “sold” it to you, what she really did was “gift” you the property. What the tax expert will do is figure out the Fair Market Value of the property when you took possession and determine its basis starting from there. You will also need to tell him/her how much you spent on improvements while you owned the property, and how much you had to spend to sell it including realtor fees, flying out to see the property, etc. The final, net profit will be taxed at 15% if your marginal tax rate is 25% or higher or 5% if your marginal tax rate is lower than 25%. So you see, you may not owe a whole lot of federal taxes on the sale of this property. Good news: Florida doesn’t have an income tax. Bad news: California taxes you on all your income regardless which state you earned it in (because you are a full-year resident of California).

   Now can you see why it is important to not tackle this one on your own?

   Hope this helps
4. Juzt_b_238 says:

   July 13, 2011 at 5:56 pm

   Log onto the IRS website: http://www.irs.gov. You should be able to search for Capital Gains and find federal publications that will help you – most of them have worksheets that you can use. The forms and pubs can be downloaded and printed in PDF format.